When it comes to investing success, it's hard to top the results of Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) CEO Warren Buffett. During a long and distinguished career, the so-called "Oracle of Omaha" has racked up quite a track record of investing success. Since he took the helm of Berkshire Hathaway in 1965, the company has delivered a compound annual growth rate of more than 20%, and by the end of 2019, its return grew to a whopping 2,744,062%.
With results of this caliber, investors could do worse than following Buffett's example, even as the market is setting new benchmarks. Three stocks Buffett invests in or is interested in, in particular, have impressive growth prospects and significant tailwinds, giving them all the makings of market-beating investments going forward.
1. The Apple of Buffett's eye
Warren Buffett has made no secret of his feelings toward Apple (NASDAQ:AAPL). The iPhone maker is by far Berkshire's largest stock holding, at roughly 48% of the company's equity portfolio. Two quotes by Buffett are representative of how he feels about Apple. Earlier this year, the legendary investor said, "It's probably the best business I know in the world." The Oracle of Omaha has also said: "We bought about 5% of the company. I'd love to own 100% of it. ... We like very much the economics of their activities. We like very much the management and the way they think."
With a market cap of $2.33 trillion, Apple is the largest U.S. public company in history, but that hasn't put the brakes on Apple's growth. For the 2021 fiscal first quarter (ended Dec. 26, 2020), the company reported revenue that grew 21% year over year, while earnings per share climbed 35% -- both to new all-time records. Those weren't the only new benchmarks. Apple set new revenue records for iPhone, wearables, and services.
That could be just the beginning. Wedbush analyst Dan Ives wrote a note to clients Wednesday titled Cook & Co. Proving iPhone Supercycle Thesis was Not Just Hype, But a Reality. Ives called the quarterly results a "jaw dropper," suggesting that the services segment, which grew 24% year over year, will be a $1 trillion business for Apple over the coming years. He also believes the company is firmly on track to hit a $3 trillion market cap in the coming year, suggesting gains of 27% over the coming 12 months. That's not bad considering Apple gained more than 80% in 2020.
2. Buffett's head is in the clouds
"Better late than never," or so the old saying goes.
Amazon (NASDAQ:AMZN) is a company that has long been on the Oracle of Omaha's radar, but one he viewed as the one that got away. "I'm a fan [of Amazon], and I've been an idiot for not buying," Buffett famously said in an interview. It was one of Buffett's money managers, Todd Combs or Ted Weschler, who eventually put things right and bought a stake in the company.
It's also fair to say that Amazon may not tick all the boxes of your typical Buffett stock, but that doesn't mean Buffett doesn't think it's a phenomenal business. Amazon has "far surpassed anything I would have dreamt could have been done. Because if I really felt it could have been done, I should have bought it," Buffett said. "I had no idea that it had the potential. I blew it."
At roughly $1.6 trillion, Amazon is the third-largest publicly traded company in the U.S., and it's the industry leader in both e-commerce and cloud computing.
Estimates vary, but Amazon controlled nearly 39% of digital sales in the U.S. last year, according to data compiled by eMarketer. That lead is expected to expand even further in 2021, edging to nearly 40%. It's the company's best-in-class fulfillment and delivery network that keeps customers coming back for more.
Total sales climbed 35% year over year during the first nine months of 2020, while earnings per share jumped 62%.
As impressive as its e-commerce operations are, it's cloud computing that pays the bills. Amazon Web Services (AWS) is still the undisputed leader in cloud computing, with a 33% share of the market -- more than its next three competitors combined, according to estimates by Synergy Research Group.
The cloud is also Amazon's most profitable business. While AWS brought in 12% of Amazon's revenue during the first nine months of 2020, it generated 62% of the company's operating income. The business also continued its impressive growth, up 30% year over year.
Given its market-leading position in two growth industries, it's little wonder that Amazon ended up in Buffett's portfolio.
3. Show me the money
The third in our trifecta of companies that dominate their industry is Visa (NYSE:V). The payments giant was responsible for more than half of U.S. credit card network purchase volume, totaling $2 trillion in payments processed in 2019 -- more than all three of its biggest competitors combined.
Given the economic uncertainty that prevailed over the past year, investors were secure in the knowledge that while Visa is the undisputed leader in payment processing, it isn't a money lender. With the increasing likelihood of a prolonged pandemic-related recovery on the horizon, that gives Visa a massive advantage.
There's little doubt that Visa's business underwent a temporary setback in the face of the pandemic. During its fiscal first quarter (ended Dec. 31, 2020), net revenue slipped 6% year over year, but it was much improved from the 17% decline it suffered in the fourth quarter. Visa's net income edged 4% lower in the first quarter, but that was a vast improvement from the 25% decline it experienced in Q4. This shows that once economic growth returns in earnest, Visa will be leading the charge with revenue and profit growth.
Looking further out, the road ahead is long for the company, particularly as it penetrates further into developing markets around the globe. Visa estimates that there are still cash purchases amounting to $21 trillion annually and nearly 2 billion adults around the world without payment accounts. That's low-hanging fruit ripe for the picking.